The massive changes in fixed income markets since 2008 have been widely discussed; see these Institutional Investor and BIS articles for an in-depth analysis. Shrinking liquidity and limited price transparency pose significant problems for credit desks, leaving buy-side firms looking to their solution providers for answers. Not surprisingly, in a recent survey of over 100 Charles River buy-side fixed income managers the majority of respondents cited discovering and accessing liquidity as their biggest market challenge.
While electronic fixed income trading has been widely touted as the solution to improved liquidity access and price discovery, it’s noteworthy that nearly half of survey respondents believe that transitioning to fixed income e-trading is their greatest operational headache. Additional areas of concern include obtaining accurate and timely pricing data, minimizing trading costs and slippage and the lack of trade history to inform trading decisions.
Although e-trading offers fixed income desks new opportunities to access liquidity and pricing information, traders don’t have time to explore each and every trading venue before making a trade decision, nor are they looking for yet another system to take up space on the desktop.
Challenges notwithstanding, the trend toward e-trading is irreversible, driven largely by regulatory changes. With trading transitioning to SEFs in the US and OTFs in Europe, and MiFID II requirements for price transparency, post-trade reporting and best execution, Celent analysts estimate that over 50% of buy-side fixed income trading will be transacted electronically by the end of 2015. We’ll discuss the transition to SEFs in a future Charles River Insight.
The Charles River Investment Management Solution (Charles River IMS) provides Buy-Side firms with decision-support tools and direct links to brokers for seamless access to fixed income liquidity and pricing information in the trading blotter. By consolidating all fixed income trading on one scalable and simplified platform, Charles River IMS provides firms with full trading lifecycle support that incorporates key data at the point of execution and direct connectivity to ECNs and other liquidity providers. This eliminates the need to switch between multiple external systems and streamlines the fixed income trading process. Traders can easily access past trade history for a name, find liquidity and quickly execute trades.
Visit the Order and Execution Management page to learn more.